3 Top Stocks to Ride the Buoyancy in Security and Safety Services Industry
The Zacks Security and Safety Services industry is poised to benefit from strong demand for security and safety solutions prompted by growing concerns of terrorist and criminal activities and the need to safeguard citizens and infrastructure. Improving supply chains and a deceleration in inflation augur well for the industry’s near-term prospects.
Companies like Axon Enterprise AXON, Brady Corporation BRC and Lakeland Industries LAKE are poised to take advantage of the buoyancy in the industry.
About the Industry
The Zacks Security and Safety Services industry comprises companies that provide sophisticated and interactive security solutions and related services, which are meant to be used for residential, commercial and institutional purposes. A few industry players develop electrical weapons for personal defense, as well as military, federal, law enforcement and private security. Some of them provide solutions for the recovery of stolen vehicles, wireless communication devices, equipment for the safety of facility infrastructure and employees, and products for detecting hazards. A few companies provide a variety of services to automobile owners and insurance companies. The industry serves customers belonging to various end markets, including manufacturing, electronics, hospitality, education, construction, telecommunications, aerospace and medical.
3 Trends Shaping the Future of the Security and Safety Services Industry
Demand for Security and Safety Services: Growing concerns of terrorism and criminal activities around the world are promoting demand for security and safety services. Political unrest across countries, prompting governments to safeguard citizens and protect infrastructure, acts as a key growth driver for the industry. With growing urbanization, governments are increasingly focusing on the safety and security of people, assets and the like, thus driving demand in the industry. Thanks to rising instances of hacking, the industry is seeing growing demand for Internet security products and services like firewalls and unified threat management. Increasing efforts directed toward ensuring safe infrastructure in smart cities bode well for the industry.
Improving Supply Chains: While supply-chain disruptions persist, the situation has improved significantly, as evident from the Institute for Supply Management report’s Supplier Deliveries Index, which reflected faster deliveries for the 12th straight month in September. This is expected to drive the industry’s growth in 2023. A reduction in raw material costs, thanks to the deceleration in inflation, should support the bottom line of industry players.
High Debt Levels: To stay competitive and keep up with changing customer needs, industry players constantly focus on upgrading and developing new products. While this augurs well for the industry’s long-term growth, hefty investments in research and development often leave companies with highly leveraged balance sheets.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Security and Safety Services industry, housed within the broader Industrial Products sector, currently carries a Zacks Industry Rank #37. This rank places it in the top 15% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than two to one.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Underperforms Sector & S&P 500
The Zacks Security and Safety Services industry has underperformed both the broader sector and the Zacks S&P 500 composite index over the past year.
Over this period, the industry has gained 4.8%, compared with the sector and the S&P 500 Index’s increase of 17.6% and 20.5%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward P/E (F12M), which is a commonly used multiple for valuing security and safety services stocks, the industry is currently trading at 16.72X compared with the S&P 500’s 18.40X. However, it exceeds the sector’s P/E (F12M) ratio of 15.31X.
Over the past five years, the industry has traded as high as 27.04X, as low as 10.38X and at the median of 18.87X, as the chart below shows:
Price-to-Earnings Ratio
Price-to-Earnings Ratio
3 Security and Safety Services Stocks to Buy
Each of the companies mentioned below presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Axon: Headquartered in Scottsdale, AZ, Axon develops and manufactures weapons for selling to U.S. state and local governments, the U.S. federal government, international government customers and commercial enterprises. AXON is thriving on the back of strong demand for TASER 7 energy device and Axon Fleet 3 in-car cameras. Strong initial demand for the recently launched TASER 10 energy weapon and Axon Body 4 camera augurs well for the company.
The Zacks Consensus Estimate for Axon’s 2023 earnings has been revised upward by 13.8% in the past 60 days. Shares of the company have surged 72.1% in a year.
Price and Consensus: AXON
Brady: The company offers complete identification solutions that help companies improve productivity, performance, safety and security. Brady is gaining from its continued focus on product development and innovation. Inorganic activities position BRC well for future growth.
The Zacks Consensus Estimate for Brady’s fiscal 2024 (ending July 2024) earnings has been revised by 12.7% each in the past 60 days. Shares of the company have gained 29.6% in a year.
Price and Consensus: BRC
Lakeland Industries: The company manufactures industrial protective clothing and accessories for the industrial and public protective clothing market. LAKE is benefiting from significant contributions from the acquisition of Eagle Technical Products, which has expanded the company’s fire service protective clothing division. An increase in direct container activity and strength in fire service and wovens product categories are expected to bolster the company’s growth.
The Zacks Consensus Estimate for Lakeland Industries’ fiscal 2024 (ending January 2024) earnings has been revised upward by 12.9% in the past 60 days. Shares of the company have soared 31.3% in a year.
Price and Consensus: LAKE
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Axon Enterprise, Inc (AXON) : Free Stock Analysis Report
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Lakeland Industries, Inc. (LAKE) : Free Stock Analysis Report
